Stocks stumbled to start the week in front of this week's Fed meeting. The Dow lost 320-points on Monday after trying to grind higher from the morning lows, only to see another wave of sharp selling in the final 30 minutes of trading. The Nasdaq and the small caps lagged, although the S-fund's DWCPF index did close off the lows showing some potential buying interest at these levels. Bonds were up as yields continue to slide.
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The S&P 500 (C-fund) pulled back from those recent highs as 4720 seems like some tough resistance, and I've been viewing it as a neckline of an inverted head and shoulders pattern. We talked about the chart formation up above so this just shows the larger trend is positive, but there is a lot of room in that channel on both sides. Seeing a fill of that open gap near 4600 wouldn't be the worst thing that can happen to the bulls - if the bottom of the gap and the 50-day EMA can hold.
The DWCPF Index (S-fund) continued its pullback after the dead-cat bounce off the lows. It looks like it may want to test the lows and yesterday it got pretty close to the closing low on December 1st. It closed off the lows of the day, which showed some buying interest, but below the 200-day EMA (blue) for a second straight day.
The EFA (I-fund) lost almost 1% and started to fill in that large open gap, which sets up an interesting pivot point. The 200-day EMA is just below the open gap and the bulls would like to see that hold as a successful test, but of course a test of the actual lows below 75 is also very possible.
BND (Bonds / F-fund) rallied, to my surprise, as yields continue to drift lower. It could have been a safe haven while stocks were selling off. It seems so obvious that yields will be higher a year from now (bonds and the F-fund lower), but doesn't everybody know that? That's the potential reason why that might not happen. Bond prices and the F-fund go up when yields fall.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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There are some concerning economic and geopolitical events happening around the world right now - I just read an article about more Chinese developer bonds, aside from Evergrande, are tumbling, which is a biggie, but we know the market can climb a wall of worry. The Fed is number one on the list of worries and the market won't like talk of hastening the bond tapering program or imminent interest rate hikes, so the fact that stocks are dipping in front of this week's FOMC Tuesday / Wednesday meeting makes sense. The question is whether we get a "buy the news" reaction on Wednesday or Thursday, after the selling of the rumors leading up to the meeting.
Internally yesterday it was pretty negative. Trading volume on the NYSE was about 3.5 to 1 in favor of declining volume. The Nasdaq had more than 2 to 1 decliners than advancers and, after a reprieve last week, the 52-week lows are piling up again after 332 new lows were made yesterday.
The yield on the 10-year Treasury dropped sharply again, and this must be some kind of reaction to the Fed's new hawkish outlook making money a little tighter. Maybe it had something to do with the Omicron death in the U.K., but I doubt that -- at least at this point.
The dollar was up moderately as it remains in that pennant formation, which looks ready to break. Now, don't forget that fake outs in these formations are not uncommon - meaning if we do see a break in one direction, watch for that to possibly reverse and break in the other direction.
We'll look at the S&P 500 chart down below but I wanted to focus on the current formations that we see and what they could be telling us.
This first shows the inverted head and shoulders pattern that we have been talking about. Theoretically, this minor consolidation could qualify as a right shoulder, but ideally we'll get a bigger, cleaner shoulder that potentially fills that open gap by 4610. Otherwise, a breakout from this area would have us looking back at that open gap for a while.
The right shoulder of the inverted head and shoulders pattern could also be an attempt at a bull flag. If that's the case then we could see a rally today as the bottom of the flag is being tested now.
And of course the charts of the S- and I-funds are in a lot worse shape than the S&P 500 / C-fund, but they are getting close to testing the recent lows, as you'll see down below, and if those tests hold, they may be ready to make a move next week - the last two weeks of the year, normally the better part of December.
The two day FOMC starts today and we should get the policy announcement at about 2 PM on Wednesday.
Internally yesterday it was pretty negative. Trading volume on the NYSE was about 3.5 to 1 in favor of declining volume. The Nasdaq had more than 2 to 1 decliners than advancers and, after a reprieve last week, the 52-week lows are piling up again after 332 new lows were made yesterday.
The yield on the 10-year Treasury dropped sharply again, and this must be some kind of reaction to the Fed's new hawkish outlook making money a little tighter. Maybe it had something to do with the Omicron death in the U.K., but I doubt that -- at least at this point.
The dollar was up moderately as it remains in that pennant formation, which looks ready to break. Now, don't forget that fake outs in these formations are not uncommon - meaning if we do see a break in one direction, watch for that to possibly reverse and break in the other direction.
We'll look at the S&P 500 chart down below but I wanted to focus on the current formations that we see and what they could be telling us.
This first shows the inverted head and shoulders pattern that we have been talking about. Theoretically, this minor consolidation could qualify as a right shoulder, but ideally we'll get a bigger, cleaner shoulder that potentially fills that open gap by 4610. Otherwise, a breakout from this area would have us looking back at that open gap for a while.
The right shoulder of the inverted head and shoulders pattern could also be an attempt at a bull flag. If that's the case then we could see a rally today as the bottom of the flag is being tested now.
And of course the charts of the S- and I-funds are in a lot worse shape than the S&P 500 / C-fund, but they are getting close to testing the recent lows, as you'll see down below, and if those tests hold, they may be ready to make a move next week - the last two weeks of the year, normally the better part of December.
The two day FOMC starts today and we should get the policy announcement at about 2 PM on Wednesday.
The S&P 500 (C-fund) pulled back from those recent highs as 4720 seems like some tough resistance, and I've been viewing it as a neckline of an inverted head and shoulders pattern. We talked about the chart formation up above so this just shows the larger trend is positive, but there is a lot of room in that channel on both sides. Seeing a fill of that open gap near 4600 wouldn't be the worst thing that can happen to the bulls - if the bottom of the gap and the 50-day EMA can hold.
The DWCPF Index (S-fund) continued its pullback after the dead-cat bounce off the lows. It looks like it may want to test the lows and yesterday it got pretty close to the closing low on December 1st. It closed off the lows of the day, which showed some buying interest, but below the 200-day EMA (blue) for a second straight day.
The EFA (I-fund) lost almost 1% and started to fill in that large open gap, which sets up an interesting pivot point. The 200-day EMA is just below the open gap and the bulls would like to see that hold as a successful test, but of course a test of the actual lows below 75 is also very possible.
BND (Bonds / F-fund) rallied, to my surprise, as yields continue to drift lower. It could have been a safe haven while stocks were selling off. It seems so obvious that yields will be higher a year from now (bonds and the F-fund lower), but doesn't everybody know that? That's the potential reason why that might not happen. Bond prices and the F-fund go up when yields fall.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
